Semi-OT. Article on Telecom NZ
worldlyinvestor.com
Mar 24, 1999
Emerging from the Doldrums
March 23, 1999 6:07 AM EST
By Lucy Weldon
Special to worldlyinvestor.com
It's great to be in an industry that has potential
galore. It's even better to experience a
booming business and stock price. This,
however, has not exactly been the case for
Telecom of New Zealand (quote, chart, profile).
In fact, the company's business performance
has been rather lackluster.
Part of the problem has been that the
company has been rocked by steep falls in toll
call revenues. International call prices have
been falling dramatically; as much as 64% in
December 1998 compared with the same
period in the previous year. And further
reductions are anticipated.
"Telecom NZ just has to live with declining
international tariffs," says Alan Pyne, partner
at telecommunication consultancy Schema in
London. "It's a good test of its management.
Other strong operators like British Telecom
(quote, chart, profile), AT&T (quote, chart,
profile) and France Telecom (quote, chart,
profile) have all coped with a similar problem."
Despite a rise in international outward call
minutes, the impact of the price cuts has
resulted in a drop in Telecom NZ's overall
international revenue by 14% in the last
quarter.
Still, Telecom NZ's stock price has been
holding up, particularly since the end of last
year. At $39, it is now trading near its 52 week
high. And, its year-to-date return is double the
sector's return.
A strong competitive position, growth in other
growing telephony services, as well as
optimism of a rebound in the domestic
economy, are all factors that may lead to a
shinier future for Telecom NZ.
Embracing Change
Overall, Telecom NZ's profit has been flat for
the past three quarters. While the company is
highly dependent on the domestic market for
growth, New Zealand's economy has been
sluggish. However, Telecom NZ's designated
chairman, Roderick Deane, sees a light at the
end of the tunnel. He is encouraged by
December's quarterly results.
Analysts, too, are expecting a more optimistic
performance, predicting restored growth when
its full year results (to end of March 1999) are
announced next quarter. Deane points to the
sharp quarterly growth in revenue from newer
telecom services, such as data services that
were up 20.8%.
In fact, revenue from data services helped to
prop up the company's overall quarterly
performance, restoring revenue growth to the
company. December's quarterly earnings
before interest and tax (EBIT) rose 4% which
analysts attributed to cost cutting.
One of Telecom NZ's urgent goals is to
resume revenue growth. In order to build on
the last quarter's momentum, the company is
relying on a variety of factors. These include
cost management, strong revenue growth from
newer telecom services and a stronger
domestic economic environment.
"The lost revenue has to be replaced by new
services which demonstrate an understanding
of the requirements of its customer base,"
says Pyne.
Regardless of the flat economy, Telecom NZ
expects revenues from data businesses and
cellular services to grow strongly. Market
forces underscore their potential, recognizing
that businesses are already harnessing these
services, particularly data services, as a way
to reduce costs.
Cellular revenue is also anticipated to grow
strongly. Currently, mobile phone connections
are running at an all time high. The company
maintains that cellular phone penetration will
continue to rise and predicts that fourth
quarter penetration will easily reach 20%.
Telstra (quote, chart, profile), Australia's
dominant telecom provider, believes that the
market potential is closer to the 30% level, as
in Australia.
Telecom NZ has other strengths that should
help it through this turbulent period of change.
It is both New Zealand's largest company with
the greatest number of shares outstanding.
The company has a weighting of around 35%
on the New Zealand Stock Exchange (NZSE)
40 Capital Index.
In addition, the company is in a prime market
position as the country's leading supplier of
telecommunication services in New Zealand
and is well placed competitively. Remarkably,
all households and businesses in New
Zealand are Telecom NZ customers.
Still, a Tough Road Ahead
However, competitive pressure is increasing.
Vodaphone (quote, chart, profile) has just
entered the New Zealand market place. This
specialist cellular operator will test Telecom
NZ's competitive mettle in a market that
Telecom NZ has targeted as an important new
source of long-term revenue.
In addition, Telecom NZ's current managing
director, Deane, has announced he will step
down in September after seven years but will
take up the chairmanship of the company. The
change of leadership is not anticipated to be a
problem.
Interestingly, Deane's replacement might
come from a non-telecom background. This
suggests that the company has embraced the
changing business dynamics of the New
Zealand telecommunications market, and has
shifted its focus firmly to online and Internet
services - factors that are key for the future
success of Telecom NZ.
Lucy Weldon is a journalist based in Kuala
Lumpur, Malaysia. She is the author of Private
Banking - a Global Perspective.
© 1999 Worldly Information Network, Inc.
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